Deficit-Cut Agreement Reached : Reagan, Conferees Target $76 Billion Over Two Years

President Reagan and congressional leaders announced agreement Friday on a two-year, $76-billion deficit-reduction plan designed to meet the goals of the Gramm-Rudman budget law and reassure jittery financial markets.

The agreement was reached a month after the Oct. 19 Wall Street plunge that shook Washington and prompted 20 days of strenuous negotiations on Capitol Hill between Republican and Democratic congressional leaders and representatives of the Administration. Until the last minute, Republicans were balking, unwilling to go along with $23 billion in new taxes over two years.

Despite the agreement calling for spending cuts, tax increases and sales of government assets, Reagan ordered Gramm-Rudman’s $23 billion in automatic across-the-board spending cuts to begin.

‘Strong Signal’

The President called the agreement “a blueprint that sends a strong signal both at home and abroad that together we can and will get our deficit under control and keep it that way.”

“This agreement is probably not the best deal that could be made, but it is a good, solid beginning,” Reagan said. He said it was “a plan that meets our short-term concerns . . . while laying the foundation for long-term solutions.”

“It is a balanced package,” said House Speaker Jim Wright (D-Tex.). “Everybody gives some; nobody gets everything he wants. Not the President, not the Congress, not Democrats nor Republicans.” Wright and other Capitol Hill leaders joined Reagan at the White House in making the announcement.

But lawmakers said it would be an uphill fight to win approval next month of the spending cuts and tax changes envisioned in the agreement.

Most of the Gramm-Rudman cuts would not be felt immediately because federal agencies were already juggling accounts to avoid major disruptions such as furloughs or layoffs. Part of the agreement is that Reagan would minimize the impact of the Gramm-Rudman cuts while the necessary enabling legislation is being produced.

Medicare Cut

Some of the Gramm-Rudman cuts, including an 8.5% drop in dairy price supports and a 2.3% cut in Medicare payments to doctors and hospitals, would be implemented as soon as Reagan signed the order.

However, if the deficit-reduction agreement is enacted, the Gramm-Rudman cuts would be canceled and programs would be restored.

The agreement would reduce the deficit in fiscal 1988, which began Oct. 1, by $30.2 billion, to about $149.7 billion, based on congressional estimates. Both the Administration and congressional estimates show the deficit shooting up from last year’s $148 billion if no action is taken.

In fiscal 1989, the deficit would be reduced by nearly $46 billion.

To accomplish that, the plan calls for legislation to:

- Raise taxes $9 billion this year and $14 billion next year. The negotiators agreed they would not touch income tax rates.

- Increase fees for some government services and increase enforcement of current tax laws.

- Restrain military and domestic spending increases, including $2 billion that was cut this year from Medicare and $900 million from farm price supports. This year’s Pentagon outlays would be held to $285.4 billion, $12 billion less than Reagan requested.

- Sell billions of dollars of government assets, possibly including the refinancing of rural electric cooperative loans.

Upcoming Legislation

Although many decisions on the specific cutbacks would be left for the upcoming legislation, the negotiators agreed not to reduce cost-of-living increases for Social Security recipients or other pensioners.

When translated into legislation and enacted, the pact would replace the Gramm-Rudman cuts, which under the law cut $23 billion--half from domestic programs and half from the military. Social Security, welfare, veterans programs and military pay are exempted from those cuts.

One of the original goals of the talks was that the automatic cuts would never occur. But Reagan decided Thursday against delaying them.

“The President is determined and adamant that one way or other, this deficit is going to be cut,” White House spokesman Marlin Fitzwater said Friday. “And we’ll do it through this automatic (cutback) if necessary,” although Reagan hoped that the agreement would later replace the cuts.

‘It’s a Disgrace’

The agreement was being criticized even before the final language was written.

“It’s a disgrace as far as I’m concerned,” said Rep. Marvin Leath (D-Tex.), a conservative who said the precarious economy demanded stronger action. Liberal Democrats said the military spending level, higher than the House-passed amount, didn’t have their support.

Sen. Bob Packwood (R-Ore.), one of the negotiators, called it a “meager” package and said he hoped that lawmakers would demand something stronger before enactment. “It’s a miserable little pittance,” he said.

The Senate spent much of Friday debating a non-binding resolution calling for an across-the-board spending freeze, including Social Security.

Michel’s Doubts

Rep. Robert H. Michel of Illinois, the House Republican leader, said it would be tough to get his members to vote for the package because of the tax increases.

“Hopefully, we can sell it,” he said. The fact that the automatic cuts were going into effect was “one of the things that (helped) nudge the process along,” he said.

Sen. Pete V. Domenici (R-N.M.), senior Republican on the Senate Budget Committee, said lawmakers should support the package even though it wasn’t all any of them wanted. “What we have done is what can be done,” he said.

Congress adjourned Friday for a Thanksgiving recess, and leaders planned to move the spending and tax bills to completion in early December. Part of the agreement is that Congress will present the President with the enabling legislation all at once--not necessarily in a single bill. The government is currently operating under a stopgap spending bill that expires on Dec. 16.